1. IT Governance Dr. Andrew Schwarz Associate Professor, ISDS May 19, 2010

2. The Importance of IT Governance
The IT Governance Global Status Report (2004)
80% of CEO’s recognized that “IT governance or some thereof is required” to resolve “IT issues”
57% of CEOs looked to IT governance to align IT strategy (and 53% to manage IT risks)
The report concluded that “solutions in this domain are not yet available”
Gartner
Firms with superior IT governance have at least 20% higher profits (ROA) than firms with poor governance given the same strategic objectives
Blind consulting report
87% of executives believe that IT is critical to their companies’ strategic success
33% of leaders reported that IT is very involved
30% reported business executive responsible for strategy works closely with IT division

3. Characteristics of High IT Governance Performers
More focused strategies
Greater differentiation between customer intimacy, product innovation, or operational excellence
Clearer business objectives for IT investment
Greater differentiation between supporting new ways of doing business, improving flexibility, or facilitating customer communication
High level executive participation in IT governance
Greater involvement, impact of CEO, COO, Business Heads, Business Unit CIOs and CFO
Who could accurately describe IT governance arrangements
Stable IT governance, fewer changes year to year
Well functioning formal exception processes
Formal communication methods

4. Governance and Strategy
If strategy is where we are headed, governance defines how we make the decisions that we need to execute our strategy
Research has suggested that structure follows strategy (Chandler)
Strategy dictates what the organization needs
Single product, single plant, single function organizations tend to be single-owner with no clear functional differentiation of strategic, administrative, and operating decisions
Single product, multi-plant, multi-function organizations tend to have a functional structure
Multi product, multi-plant, multi-function organizations tend to have a multi-divisional structure

5. Governance and Strategy (2)
However, structure also restricts strategy
Organization can restrict the ability of the organization to quickly react to changing market conditions
Thus, there is a mutually enhancing relationship between strategy and structure
However, at a higher level, it is crucial that strategy and structure align with one another
Alignment is therefore the degree to which the information technology mission, objectives, plans, and technology support and are supported by the business mission, objectives, plans, and business processes

6. Impact of IT-Business Alignment
Firm
Performance
IT-Business Alignment IT
Effectiveness

7. Impact of IT-Business Mis-Alignment
Poor utilization of IT resources
Sub-optimal firm performance
IT-Business Mis-Alignment
Higher IT spending
Missed IT opportunities
Little return for IT investments

8. Types of Alignment Strategic alignment Structural alignment
Congruence of the firm’s IS strategy with the business strategy
Structural alignment
Congruence of the business and IS structures within the organization
Social alignment
The level of mutual understanding of and commitment to the business and IT mission, objectives and plans

9. Key Issues in Strategic Alignment
Key considerations
Linked business and IS missions, priorities, and strategies
Interconnected business and IS planning processes, and resulting plans
Goal
IS priorities, capabilities, decisions, and actions to support those of the entire business

10. Key Issues in Structural Alignment
Key considerations
Location of IT decision-making rights
Reporting relationships
(De)centralization of IT services and infrastructure
Deployment of IT personnel
Goal
IT and business structures to support organizational objectives

11. Key Issues in Social Alignment
Key considerations
Ensure line and IS executives are communicating
Obtain buy-in from line executive commitment to IS issues and initiatives
Goal
Ensure both business and IS executives have a similar view of the role of IT in the firm

12. Study #1: European Firms
Randomly selected 500 organizations across Europe
Annual survey of IT diffusion
CIO or IT executive respondent
Data modeled for organizations participating in two subsequent years
58 firms in 2003 and 2004

13. Study 1 Results Year 1 Strategic Impact Year 1 IT-Biz Alignment Year 2
Impacts Y1 Strategy & Y1 Operations
Year 1
Operational
Impact
Year 1
IT-Enabled
Biz Processes
Year 2
Operational
Impact
Impacts Y1 Strategy & Y1/Y2 Operations

14. Study #2: German Banks
1,020 questionnaires mailed to Germany’s largest banks
Chief Lending or Chief Credit Officer
Data modeled for those returning the survey
136 fully answered

15. Study 2 Results IT Flexibility Structural Alignment Business Process
Performance
Social
Alignment

16. IT Governance Defined
The assignment of decision rights and the accountability framework to encourage desirable behavior in the use of IT
Governance is really composed of three things
What decisions are to be made
Who will make each of those decisions
What process will be used to make and communicate those decisions

17. Decision Categories IT Principles IT infrastructure strategies
High-level statements about how IT will be used to create business value
IT infrastructure strategies
State the approach for building shared and standard IT services across the enterprise (typically technical)
IT architecture
The technical choices that will meet business needs
Business application needs
Where the business defines its’ application needs
IT investment and prioritization
Defines the process for moving IT-based investments through justification, approval, and accountability

18. Decision Makers Governance defines two types of rights
Decision rights = who has the right and responsibility to make a decision about how IT is used
Input right = who has the right to provide input to a decision, but not make a decision?

19. Decision Process Style Definition Mechanism Business Monarchy
C-level executives hold the right to make decisions
Executive committee or IT council with executive committee members
IT Monarchy
IT executives hold the right to make decisions
IT leadership council that includes corporate and business unit CIOs
Feudal
Business unit leaders have decision or input rights
Business-only committee
Federal
Rights are shared by C-level executives and one other tier of the business hierarchy
Committees that draw from several organizational levels
Duopoly
One IT group and one business group share a right
IT-business unit committee
Anarchy
Individual end users hold a right
None

20. Allocating Decision and Input Right
Governance is concerned with who gets to make the decisions for the 5 areas versus who gets input
What role do users play?
What role does top management play?
Are there decisions that should be made by IT versus those that should be made other business units?
Who has the decision and input rights?
IT dominates or
User dominates

21. Drivers towards User Dominance
User demand
Need for flexibility
Easy to buy pre-packaged software
Users desire to control their own destiny
Need for global firm, but local sensitivities

22. Drivers towards IT Dominance
IT has skills that business unit does not
Need for standardization and ensuring system stability
Business leaders not adept at envisioning possibilities with IT, nor at determining feasibility
Need for corporate-wide data management
Eliminate stovepipes
IT better at cost estimation and analysis

23. Governance Framework Business Monarchy IT Monarchy Feudal Federal
IT Duopoly
Anarchy
IT Principles
IT Infrastructure
IT Architecture
Applications
IT Investment

24. Evidence to date shows that there are typical IT governance input and decision rights patterns. The federal style dominates, with IT making infrastructure and architecture decisions.
Input and decision style patterns in IT governance of a range of organizations
Domain
IT principles
IT infrastructure
strategies
IT architecture
Business
application needs
IT investment and
prioritization
Style
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Business
Monarchy 27 27 7 6 1 12 1 30 IT
Monarchy 1 18 10 59 20 73 8 10
Feudal 3 1 2 1 18 3
Federal 83 14 59 6 46 4 81 30 93 27
Duopoly 15 36 30 23 34 15 17 27 6 30
Source: MIT Sloan CISR
When and where are different types of IT governance arrangements effective?
Enterprises have different governance styles for different IT domains. The federal style dominates for input. The dark shaded cells show the common patterns in enterprises studied for decision rights and the and the lighter shaded cells show common patterns for input.
1) IT principles (or maxims) decision rights are most commonly held by duopolies with a significant minority held by business monarchies.
2) IT infrastructure strategies decision rights are strongly held by IT monarchies with strong input from other parts of the enterprise.
3) IT architecture decision rights are strongly held by IT monarchies with strong input from other parts of the enterprise.
4) Business application needs decision rights are split between federal duopoly styles, with the latter being common in highly divisionalized enterprises.
5) IT investment and prioritization decision rights are spread across business monarchy, federal and duopoly styles.
The case study organizations going through considerable ‘top down’ change often shifted their decision rights for both IT principles and IT investment and prioritization to business monarchies.
Action item: Assess how you compare to common enterprise patterns and identify reasons for differences.
Anarchy 1 1 3 1
Don’t Know 1 2 2 1 2
Common input styles
Numbers are percentages of the 256 Gartner for-profit and not-for-profit enterprises studied in 23 countries in 2002
Common decision rights styles
© 2002 MIT Sloan Center for Information Systems Research (CISR). This framework is adapted from Weill & Woodham's work originally published and copyrighted by the MIT Sloan CISR as Working Paper No. 326, "Don't Just Lead, Govern: Implementing Effective IT Governance," April 2002, and is used by Gartner with permission.

25. Top three performers as measured by governance performance
Effective IT governance arrangements involve top level business and IT executives working closely together.
Business and IT executive collaboration mark high IT governance performers
Domain
IT principles
IT infrastructure
strategies
IT architecture
Business
application needs
IT investment and
prioritization
Style
Business
Monarchy IT
Monarchy
Feudal
Federal
Duopoly
Anarchy
Source: MIT Sloan CISR and Gartner EXP Research
When and where are different types of IT governance arrangements effective?
IT governance performance was assessed by measuring its influence on four outcomes: cost effective use of IT; effective use of IT for asset utilization; effective use of IT for growth; effective use of IT for business flexibility. These outcomes were weighted according to their importance to each enterprise. On a scale of (minimum to maximum), the average score was 69%. Seventeen percent of enterprises scored above 80%.
Some IT governance arrangements are clearly more effective than others. These arrangements involve:
Collaborative and tightly -controlled decision making (duopoly or business monarchy) between business and IT executives for IT principles and IT investment and prioritization
IT executive leadership for making IT infrastructure strategies and IT architecture decisions
High-level business unit involvement for determining business application needs
Federal input to all domains
Arrangements which don’t work well include:
Federal decision rights for all but business application needs
Feudal decision rights for business application needs
Governance performance is higher in “for-profit” enterprises when compared to “not-for-profit” enterprises, partly because the latter use the federal style much more for decision rights. 1 2 3
Top three performers as measured by governance performance
© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc, drawing on the framework of Weill and Woodham, 2002.

26. Top IT governance mechanisms focus on business and IT relationships
Enterprises need to carefully monitor the nature and effectiveness of their IT governance mechanisms.
Top IT governance mechanisms focus on business and IT relationships
IT Governance mechanism effectiveness
% respondents using 85 87 71 89 86 96 56 67 62 79
Business/IT relationship managers
IT leadership committee
IT council of business and IT executives
Executive committee
Process teams with IT members
Tracking of IT projects and resources
Service level agreements
Capital approval committee
Source: MIT Sloan CISR and Gartner EXP Research
When and where are different types of IT governance arrangements effective?
The governance mechanisms used by high governance performers are much more effective than those in the lower performing group.
The top three mechanisms in terms of impact were heavily focused on the business-IT relationship. Executive committees (including business and technology executives) had the most positive impact followed by Formal tracking of the business value of IT and Business/IT relationship managers. Mechanisms around the IT organization itself were still effective, but less so generally than real interlocking of business and technology executives and managers, plus the discipline of tracking IT’s business value.
Two mechanisms in particular were seen as ineffective by high governance performance respondents: Chargeback arrangements and Architecture committees. The message here is that it’s very difficult to implement these mechanisms effectively. Chargeback arrangements must be carefully linked back to desired behaviors. Architecture committees need business input but clear decision rights and transparent exception processes.
Action Item: Ensure that IT governance mechanisms focus on the interlinking of business and IT and the discipline of tracking IT’s business value, projects and resources.
Architecture committee
Formally tracking IT’s business value
Web-based portals, intranets for IT
Chargeback arrangements 1 2 3 4 5
Not Effective Very
© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc.

27. Example of an effective IT governance arrangements matrix
The ‘Governance Arrangement Matrix’ can be used to illustrate how governance styles, IT domains and governance mechanisms inter-relate.
Example of an effective IT governance arrangements matrix
Domain
IT principles
IT infrastructure
strategies
IT architecture
Business
application needs
IT investment and
prioritization
Style
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Input
Decision
Business
Monarchy
Cap appr comm IT
Monarchy
CIO
IT leadership
CIO
IT leadership
Feudal
Federal
Exec comm
Biz leaders
Exec comm
Biz leaders
Biz leaders
Biz pro own
Exec comm
Biz leaders
Duopoly
Exec comm
IT leadership
Biz leaders
Biz pro own
Biz/IT rel mgs
Biz leaders
Biz pro own
Source: MIT Sloan CISR and Gartner EXP Research
When and where are different types of IT governance arrangements effective?
The patterns of high governance performers together with effective mechanisms provide input into examples of effective IT governance arrangements and their representations.
Effective IT governance arrangements provide for federal input, joint decision rights between business and IT leadership in IT principles and business application needs, top level business executive decision rights for IT investment and prioritization, and IT monarchy decision rights for IT infrastructure strategies and IT architecture.
The gird above shows the matrix for the second of the patterns for high IT governance performers.
Business and IT executives together hold the decisions rights for IT principles and business application needs
Top level executives (including the CIO) hold decision rights for IT investment and prioritization
The IT leadership holds the decision rights for IT infrastructure strategies and IT architecture
Input rights
Decision rights
Governance mechanisms
Exec comm
Executive committee ‘C’ levels)
Cap appr comm
Exec comm subgroup, includes CIO
Biz leaders
Business unit heads/presidents
Biz pro own
Business process owners
IT leadership
CIO, CIO’s office and biz unit CIOs
Biz/IT rel mgs
Business/IT relationship managers
© 2002 MIT Sloan Center for Information Systems Research (Weill) and Gartner, Inc. drawing on the framework of Weill and Woodham, 2002.

28. Governance Best Practices
There is no one “best” governance arrangement
Tends to be….
Those seeking synergies among business units enforce-top down decisions
Those with autonomous business units emphasize local decision making
Those with both synergy and autonomy try to encourage faster decision making

29. What is your Business Orientation?
Autonomy
Highly localized pressures
Business processes distinct
Synergy
High standardization pressures
Business processes integrated
Agility
High speed, flexibility pressures
Business processes adaptable

30. Business & IT Orientation
Autonomy
Emphasize BU decisions, negotiation, peer socialization
Synergy
Emphasize enterprise-wide styles and mechanisms
Agility
Emphasize IT’s role in agility, the use of principles, education

31. Implement key IT governance styles and mechanisms for your business orientation
Synergistic enterprises
Agility-focused enterprises
Autonomy-focused enterprises
Decision-making
styles
Tight corporate coupling between business and IT executives
Top down mandated technology decision making
Business and IT leaders combine for specific purposes
Enterprise-wide arrangements emphasize coordination & learning
IT works with individual business units and process owners
Emphasis on local business decision making
Focus of key
mechanisms
Well developed business and decision processes
Executive-level committees
High level centrally reporting business-IT relationship managers
Extensive use of IT principles
Business ownership of IT projects
Planned IT-business education experiences
Transparency and Communication
CIOs work through 1/1 negotiation
Standards achieved through socialization and peer pressure
Business-IT service arrangements are in place

32. Top Performing Enterprises
Top-performing enterprises govern IT differently from each other and from average enterprises
Firms leading on growth decentralize more of their IT decision rights and place IT capabilities in the business units
Firms leading on profit centralize more decision rights; senior business leaders make the major IT decisions
Top performers design their IT governance to reinforce their performance goals and link IT governance to the governance of their other key enterprise assets and desired behaviors.

33. Emerging Trends
Organizational governance is less likely to be centralized or decentralized
Hybrid, federal, or dispersed allocation of decision rights
Focus on demand side and supply side governance
Management of risk, finance, and outsourcing will become significant
We do not know how to do this yet
Emerging models for governance
Emergence/proliferation of new organizational roles
CIOs will have to balance their roles between
Managing the “IT business of the business”
Seeding, stimulating, influencing, and driving IT-enabled business innovation

34. Proliferation of IT Roles
IT Investment Board
Business Technology Council
Divisional Project Approval Committee
Corporate Project Approval Committee
Head of IT Finance (e.g. CFO of IT)
CIO
CFO
Selected Business SVPs
Head of IT Strategy
CIO
Selected Business SVPs
Head of IT Applications
Functional Area Leads
Client Relationship Managers
Divisional Functional Heads
Divisional CFO
Divisional PMO and Finance rep.
Divisional CIO, Divisional CTO
Enterprise Functional Leads
IT Directors
Head of Portfolio & Program Mgt.
Head of Enterprise Architecture
Head of IT Strategy
Business Strategy Analyst
Finance Representative
Office of Architecture & Standards
Office of the CIO
Head of Enterprise Architecture
Business Architects
Technical Architects
CIO
CTO
Chief Information Officer (CIO)
Chief Technology Officer (CTO)
Head of IT Security
Head of IT Risk
Head of IT Finance
Head of IT Strategy
Head of IT HR
Head of Vendor Management
Head of IT Application Areas
Head of Portfolio & Program Mgt.
Head of Enterprise Architecture
Head of IT Communications
Functional Groups
Project Teams
IT Director
IT Strategists
Business Analysts
Project Managers
Business Analysts
Technical Analysts
Developers
Trainers 34

35. How do I Know if I am Successful?
Financial Goals
How should we appear to stockholder?
Vision:
Metrics:
Performance:
Internal Business Process
What business processes should we excel at?
Customer Goals
How should we appear to our customer?
Learning and Growth Goals
How will we improve internally?

36. Concluding Thoughts Getting governance right matters
Proliferation of methodologies
COBIG, ValIT, and others
All helping you to allocate decision and input rights using different approaches
Innovation matters

37. Thank You. Dr. Andrew Schwarz Louisiana State University E. J
Thank You! Dr. Andrew Schwarz Louisiana State University E. J. Ourso College of Business